India Four Wheeler Industry

The Four-Wheeler Industry in India has not quite matched up to the performance of its counterparts in other parts of the world. The primary reason for this has been the allpervasive regulatory atmosphere prevailing till the opening up of the industry in the mid-1990s. The various layers of legislative Acts sheltered the industry from external competition for a long time. Moreover, the industry was considered low-priority as cars were thought of as unaffordable luxury". Post Liberalization, the car market in India have been in a burgeoning stage with all types of cars flooding the market in order to meet the demands of Indian customers who are increasingly exposed to state of the world automobiles and want the best when it comes to purchasing a car. It is expected that by 2030, the Indian car market will be the 3rd largest car market across the globe. The main encouraging factors for the success story of the car market in India are the increase in the opportunity for new investments, the rise in the GDP rate, the growing per capita income, massive population, and high ownership capacity. The liberalization policies followed by the Indian government had been inviting foreign players to participate in the car market in India. The recent trend within the new generation to get work in the software based sector has led to the rise in the income level and change in the lifestyle significantly, which has further led to the increase in the demand for luxurious cars among them. The car Market in India is crowded with all varieties of car models like the small cars, mid-size cars, luxury cars, super luxury cars, and sports utility vehicles. Initially the most popular car model dominating the Car Market in India was the Ambassador, which however today gave way to numerous new models like Hyundai, Honda, Mercedes-Benz, BMW, Bentley and many others. Moreover, there are many other models of cars in the pipeline, to be launched in the car market in India. Some of the leading brands dominating the car market in India at present are Hindustan Motors, Reva Electric Car Co., Fiat India Private Ltd., Daimler Chrysler India Private Ltd, Ford India Ltd., Honda Siel Cars India Ltd., General Motors India, Hyundai Motors India Ltd., Skoda Auto India Private Ltd., and Toyota Kirloskar Motor Ltd. Since the demand for foreign cars are increasing with time, big brands like Mercedes Benz, Volkswagen, Aston Martin, Ferrari, and Rolls-Royce have long since made a foray into the Indian car market. Facts about Indian Car Market: Although the Indian automobile industry has come a long way since the deregulation in 1993, India does not rank well among its global peers in many respects, viz., the contribution of the sector to industrial output, number of cars per person, employment

9 cars on per 100 persons.3 cars per 100 persons. Russia also stands ahead than India and China with 16. MARKET SCENERIO (2008-09)[passenger veichle] . number of months' income required to purchase a car. assemblers and marketers. This has resulted in a significant shift in the way business is conducted by suppliers. However. Among developing countries. Two things that stunted growth of the Indian automobile industry in the past have been low demand and lack of vision on the part of the original equipment manufacturers (OEMs).by the sector as a percentage of industrial employment. and penetration of cars. the demand has picked up after the liberalization of the regulatory environment.9 cars per 100 persons. Figure:-Passenger vehicle stock per 100 people India is far behind from other countries with just 6. and global OEMs who enjoy scale economies both in terms of manufacturing and research and development (R&D) entered the Indian market. while Unites States has 76.

cr.Sales Comparision(in Rs.)[all total] YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 TATA MOTORS 23490 31089 33123 28538 38364 MARUTI SUZUKI 14898 17358 21200 23381 31947 ASHOK LEYLAND 6200 8500 9178 6826 8071 .

India. producing fuel efficient vehicles to conserve scarce resources and producing indigenous utility cars for the growing needs of the Indian population. and had a 0. Maruti is the highest volume car manufacturer in Asia. Part of the Tata Group. and has made profits every year since inception till 2000-01. it was formerly known as TELCO (TATA Engineering and Locomotive Company). There was an option in the agreement to raise Suzuki’s equity to 40%. is a federation . commonly abbreviated OICA (English: International Organization of Motor Vehicle Manufacturers). In 2000-01. Five years later. A license and a Joint Venture agreement were signed with the Suzuki Motor Company of Japan in Oct 1983.Maruti Udyog Limited (MUL) was established in Feb 1981 through an Act of Parliament.modernizing the Indian automobile industry. TATA MOTORS COMPANY PROFILE Tata Motors Ltd is a multinational corporation headquartered in Mumbai. although Maruti generated operating profits on an income of Rs 92.5 billion.81% share of the world market in 2007 according to OICA (The Organisation Internationale des Constructeurs d'Automobiles. Suzuki further increased its equity to 50% turning Maruti into a non-government organization managed on the lines of Japanese management practices. in 1992. outside Japan and Korea. which it exercised in 1987. by which Suzuki acquired 26% of the equity and agreed to provide the latest technology as well as Japanese management practices. Suzuki was preferred for the joint venture because of its track record in manufacturing and selling small cars all over the world. It is India's largest company in the automobile and commercial vehicle sector with upwards of 70% cumulative market share in the domestic commercial vehicle segment. Maruti created history by going into production in a record 13 months. Tata Motors has a consolidated revenue of USD 16 billion after the acquisition of British automotive brands Jaguar and Land Rover in 2008. to meet the growing demand of a personal mode of transport caused by the lack of an efficient public transport system. high depreciation on new model launches resulted in a book loss. Maruti is one of the most successful automobile joint ventures. having produced over 5 million vehicles by May 2005. It was established with the objectives of .

It coordinates communication among manufacturers. as well as in Argentina. . founded in 1919. Pantnagar. In March 2008. Ratio Analysis enables the business owner/manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. watching especially for any unfavorable trends that may be starting. Apply Ratio Analysis to Financial Statements to analyze the success. failure. In India Tata ranks as the leader in every commercial vehicle segment. To do this compare your ratios with the average of businesses similar to yours and compare your own ratios for several successive years.  MEANING & IMPORTANCE OF RATIO: The Balance Sheet and the Statement of Income are essential. was ranked among the top 10 corporations in India with an annual revenue exceeding INR 320 billion.000 (ex-factory) or approximately USD 2300. It also acquired Hispano Carrocera SA. Ratio analysis may provide the all-important early warning indications that allow you to solve your business problems before your business is destroyed by them. Tata Motors is a dual-listed company traded on both the Bombay Stock Exchange. as well as on the New York Stock Exchange. which ended in 1969. Lucknow. Established in 1945. now known as Tata Daewoo Commercial Vehicle. when the company began manufacturing locomotives. which also includes the Daimler and Lanchester brands. the company manufactured its first commercial vehicle in 1954 in a collaboration with Daimler-Benz AG. The OICA ranked it as the 19th largest automaker.of automobile manufacturers. The company is the world’s fourth largest truck manufacturer. and the purchase was completed on 2 June 2008. which at INR 100. Sanand and Pune in India. but they are only the starting point for successful financial management. Ahmedabad. Tata Motors is also the designer and manufacturer of the iconic Tata Nano. Tata Motors has auto manufacturing and assembly plants in Jamshedpur.)data. now a fully-owned subsidiary. in South Korea. and the world’s second largest bus manufacturer. and progress of your business. is the cheapest production car in the world. as well as a number of international auto shows. and the second largest manufacturer of commercial vehicles in the world. and is in the top 3 makers of passenger cars. based on figures for 2007. Tata Motors in 2005. South Africa and Thailand. based in Paris. it acquired the Jaguar Land Rover (JLR) business from the Ford Motor Company. In 2004 Tata Motors bought Daewoo's truck manufacturing unit.

creditors and even management.  UTILITY OF RATIO ANALYSIS: It is very important to find the ratio of liquidity. Because the ratio analysis provides useful data to the management. logical relationship between any two items taken from financial statement as prepared and presented annually are of little use for guidance of prospective investors. important uses of it are given as below:  PROFITABLITY : Useful information about the trend of profitability is from profitability ratio.  EFFCIENCY : The turnover ratios are excellent guide to measure the efficiency of managers. Banks and other leaders will be able to conclude from these ratios whether the firm will be able to pay regularly the interest and loan installments. acid test ratio will tell whether the firm will be able to meet its current liabilities and when they nature. The relation between in two related items of financial statements is known ratio. The current ratio. The gross profit ratio. If relationships between various related items in these financial statements are established.Ratio is a figure showing. All such ratio related to sales present a good picture of the success on the business. profitability etc. net profit ratio and ratio of return on investment give a good idea of the profitability of the business. investors get an idea about overall efficiency of managers and bank as well as other creditors draw useful conclusion about repaying capacity of the borrowers. . they can provide useful dues to garage accurately the financial health and ability of business to make profit.  LIQUIDITY : In fact the use of ratio was made initially to ascertain the Liquidity of business. On the basic of this ratio.

the management may decide to get additional liquid funds. it is not desirable only ratio analysis will provide this information. unless they are compared with similar ratios of other firms belonging to the same industry. for one year may compare favorably with industry average. The efficiency of each department a thus be deter minded. the ratio of investment. the ratio are the most useful I financial statement. This is a inter firm compared to other firms comparison. Classification of ratio Profitability ratio Gross Profit Ratio: Meaning: . A particular ratio of a company. which shows the strength and weakness of the firm as compared to other firms and will indicate corrective measures.  USEFUL FOR DECISION MAKING : Ratio guide the management in making some of the important decision.  INDICATE TREND : The ratio of the last 3 to 5 years will indicate the trend in the respective fields. suppose. If various ratios are presented these reports. the liquidity ratios shows an unsatisfactory position. Thus. Even for capital expenditure decision.  USEFUL FOR BUDGETARY CONTROL : Regular budgetary reports are prepared in a business where the system of budgetary control is in use. INTER FIRM COMPARION : The absolute ratios of a firm are not of much use. but its trend shows a deteriorating position. it will give a fairly good idea about various aspects of financial position.

There is no calibration against reasonability of gross profit ratio. sales volume and costs.  If this ratio is low. In many industries. the selling price is reduced but there may be no corresponding reduction in cost of sales. Formula: Gross profit Sales X 100 . Implementation:  Gross profit is result of the relation between price. damage and so on in the case of those firms which follow the policy of fixed gross profit margin in pricing their product. spoilage.  It expresses in percent. It is a significant indicator of the profitability of business. 1000 a margin of 250 rupees is available from which operating expenses of business are recovered. A change in the gross margin can be brought about by changes in any of these factors.  The ratio shows whether the mark up obtained on cost of production is sufficient or not. It is expresses relationship between Gross Profit earned to net sales. there are more or less recognized gross profit ratios and the business should strive to maintain this standard. the management must investigate the causes and try to bring up this ratio. the selling price is reduced but there are may be no corresponding reduction.  The gross margin represents the limit beyond which fall in sales price are outside the tolerance limit.  The gross profit ratio can also be used in determining the extent of loss caused by theft. However it must be enough to cover its operating expenses. For example. In such a case. it may also mean that due to depression. a ratio shows that for a sale of every Rs.  Alternatively. it indicates that the cost of sales is high or that the purchasing is inefficient.

In order to have a better idea of profitability.  The higher the ratio.  A high net profit margin would ensure adequate return to the owners as well as enable a firm to withstand adverse economic conditions when selling price is declaiming.  The ratio of net profit ratio to sales essentially expresses the cost price effectiveness of the operation. If the gross profitability increases over the five years but net profit is declining.30 2008 10.26 As mentioned above the gross profit ratio indicates the relationship between gross profit and net sales. Formula: .85 8. it indicates that administrative expenses are slowly rising. For consecutive four years the gross profit ratio is positive.77 3. cost of production raising and a low net profit margin has the opposite implication.company 2010 MARUTI TATA MOTORS INTERPRETATION: 2009 8.  It indicates the portion of sales revenue is left to the proprietors after all operating expenses are paid. Net Profit Ratio: Meaning: Net profit ratio is valuable for the purpose of ascertaining the over-all profitability of business and shows the efficiency of operating the business.84 5. the expenses of operating the business and the cost of the borrowed funds. Here from the table we can judge the financial position of Maruti Suzuki year wise. the better will be the profitability. but also to leave a margin of reasonable compensation to the owners for providing their capital at risk. the gross profit ratio and net profit ratio may be simultaneously considered.97 8. It indicates better financial position of the company. Implementation:  The net profit ratio is indicative of management’s ability to operate the business with sufficient success not only to recover from revenue of the period the cost of merchandise or services.

gross as well as net. Implementation:  Some accountants calculate expenses ratio in respected of raw – material consumed.96 Interpretation :  Higher the net profit ratio shows better financial position of the company.  Here negative sign shows decrease in operating expenses.29 6.Net Profit X 100 Sales 2010 MARUTI SUZUKI TATA MOTORS 8. Thus.77 2008 9. direct wages and factory expenses. Expenses Ratio: Meaning:  This ratio shows relationship between expanses to sales. higher the ratio yields higher profit.72 3.  It is closely related to the profit margin.34 6.28 2009 5.  Net profit is the profit that is available to the proprietors of the firm after clearing all outstanding and expenses. This operating expense may be due to growth in the organization or it may reflect inefficacy of administrative control on expenses. Formula:  Expenses X 100 Sales .

good destroyed by fire and so on.18 2008 14.  It is closely related to the profit margin. . direct wages and factory expenses.OPERATING RATIO: Meaning: Operating Ratio is computed by dividing expenses by sales.53 Return on investment / Capital employed: Meaning:  The profitability ratio can be computed by relating the profits of a firm to its investment.71 10. gross as well as net.  The term ‘operating ratio’ includes (1) COGS (2) administrative expenses (3) selling expenses and (4) financial expenses but excludes taxes.68 2009 9.12 11. dividends and extraordinary losses due to theft of goods.74 6. Formula: C O G S + Operating expenses Net sales X 100 2010 MARUTI TATA MOTORS 11. Implementation:  Return on investment indicates the profitability of business and is very much in use among financial analysis. Implementation:  Some accountants calculate expenses ratio in respected of raw – material consumed.

35 9.  The limitation of EPS is that it does not show how much dividend is actually paid to shareholders and how much profit is retained in business.  This ratio shows the profitability of the firm from the owner’s point of view.  It is an index of profitability of business and is obtained by comparing net profit with capital employed. it is better for the company.  It is essential that EPS of the company should be compared with the other companies and also average of the company before giving final opinion. that is.  Higher the ratio. The ultimate interest of any business is the rate of return on invested capital.85  This ratio shows relationship between E B I T to CAPITAL EMPLOYED.41 2009 17. the amount that they can get on every share head. Earning per share: Meaning:  EPS measures the profit available to the equity shareholders on a per share basis. It may be measured by the ratio of income to equality capital.89 22. By comparing EPS of the current year with past years the path of the trend of profitability can be ascertained. Implementation: . Formula: EBIT Capital employed X 100 2010 MARUTI TATA MOTORS INTERPRETATION: 28. The ratio is an indicator of the measure of the success of a business from the owners’ point of view. reserves and long term loans such as debentures.66 8.  It determines whether a certain goal has been achieved or whether an alternative use of capital is justified. Capital includes share capital.48 2008 27.

of equity shares 2010 MARUTI TATA MOTORS 6.00 2009 3. In the other words.00 15.00 .91   Like the EPS. the DPS is also should not be taken at its face value as the increase DPS may not be a reliable measure of profitability as the equality base may have increase due to increase relation without any change in the number of outstanding shares.94 23. Earning per share is a widely used ratio.82 17.00 15.50 2008 5.81 2008 55. 85. DPS is the Net distributed profit belonging to the shareholders divided by the No. Implementation:  The DPS would be a better indicator than EPS as the former shows what exactly is received by the owners. of ordinary shares outstanding. Formula: Total dividend declared No.00 6. EPS s a measure of profitability Formula: Profit after tax – preference dividend X 100 No.93 42. of equity shareholders fund 2010 MARUTI TATA MOTORS Dividend per share: Meaning:  DPS is the dividend paid to shareholders on a per share basis.42 2009 42.

Formula: Earning per share . Thus ratio is computed by dividing the market price of the shares by the EPS. Implementation:  The price earning ratio reflects the price currently being paid by the market for each Rupee of currently reported EPS.Price earning ratio: Meaning:  It is closely related to the earning yield leanings price ratio. the PIE ratio measures investors’ expectations and the market appraisal of the earnings. Therefore. In other words. only normally Market associated share sustainable earning value perwith the assets are taken into account. It is actually the reciprocal of the latter.

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